Euro Zone Factory Output Falls Amid Signs of Bottom

Monday, 14 Jan 2013 | 9:16 AM ETReuters

SHARES

Greg Pease | Stone | Getty Images

Output at euro zone factories fell for the third straight month in November and against expectations of a rise, but Monday's data included some evidence to back hopes that the bloc's recessionmay now have bottomed.

Industrial production in the 17 countries sharing the euro fell 0.3 percent in November from the previous month, continuing its fall since the European summer, the EU's statistics office Eurostat said.

Factory output, two-thirds of which is generated by Germany, France and Italy, was also down almost 4 percent on an annual basis in the month, highlighting just how few cars, televisions and other goods like fridges Europeans have been buying at a time of record unemployment.

However, production of machinery used to make other goods, an indicator of future business, rose 0.7 percent in November from October, after two months of losses.

If production of those capital goods continues to increase, that could support business surveys and the view of the ECB that the euro zone will recover from recession in 2013 and that the economy hit bottom in the fourth quarter of last year.

Economists polled by Reuters expected a very modest rise in overall factory output in November from October, and a shallower fall on an annual basis.

"The uncertainty, the risk of a euro zone break-up was a major drag on businesses last year, but this year we are beginning to see some stabilization," said Ulrike Rondorf, an economist at Commerzbank. "We expect a recovery, especially in Germany, in the spring," she said.

The euro zone's debt and banking crisis has driven a vicious cycle of falling business consumer morale, repossessed homes and lengthening job queues that has sucked away demand for factory-made goods. Companies from Fordto airline Iberia have announced thousands of job cuts across the European economy.

But a series of unprecedented steps, including a European Central Bank plan to buy the bonds of governments facing sharply rising borrowing costs, helped to calm a situation that threatened the viability of the common currency.

While households are yet to feel any sense of a recovery -production of durable consumer goods such as televisions fell nearly 8 percent in November compared to a year earlier - economists and policymakers see a turn in sentiment.

"The worst is behind us," David Mackie, an economist at JP Morgan said in a research note. "We believe that the euro area will exit recession in the first half of this year," he said.

Still, any recovery will likely be weak. The euro zone's economy as a whole will grow just 0.1 percent this year, the European Commission - the EU executive - forecasts. Large national economies such as Italy and Spain will not emerge from the downturn until 2014, according to the Commission.